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Four Reasons Why Signing an Exclusive Contract With Your Real Estate Broker Is a Bad Idea

Never trust a broker who forces you into an exclusive contract when negotiating real estate options.

The world of commercial real estate is both wonderful and frankly, weird. Billions of dollars in transactions are negotiated month after month. Yet little innovation is expected of the brokers who represent companies in these very sophisticated lease and purchase negotiations. This seems to have bred a culture of entitlement wherein brokers expect a guarantee of compensation before expending any time working for a client.

In what other professional service industry is compensation assured without a guarantee of excellent service? None. That’s not to say you should hire a number of different brokers from different firms to compete for your business. It simply means that if your company is engaging a real estate service provider you should be wary of signing an exclusive agreement, unless it is for corporate hygiene purposes. (Even then be sure to have a very clear right to terminate for any reason). Here’s why:

1. Don’t trust a broker who doesn’t trust you.

Any service provider who is committed to being a true fiduciary should lead with value and trust that fair compensation will follow. Brokers with this mindset have the confidence and desire to prove their worth, trusting that you will reward their efforts, rather than relying on a legal contract to protect their investment of time. Southern California’s leading corporate real estate advisors have embraced this lead-with-value mind-set, and we are seeing this trend emerge in multiple markets across the nation.

2. When you’re negotiating for real estate, you can’t afford extra risk.

Keep in mind that real estate negotiations come at a risky time for companies. By signing an exclusive agreement you are committing yourself to work with someone from conception to completion with no guarantee of good service. Your business is already in a state of flux, which correlates to risk. Why add additional risks by pigeonholing yourself into what might not be a perfect fit?

Moreover, consider the scenario in which your broker isn’t willing to mutually rescind the agreement. Should this happen, you’ll be hard pressed to find another broker who will even talk to you, thereby forcing you to locate space, negotiate terms and otherwise handle the transaction yourself. Is the time and energy worth it? Is the risk worth it? Definitely not.

3. You want a long-term relationship with your broker, not a one-time deal.

Remember that an exclusive contract is inherently transactional. In an ever-complicated world, companies need service providers that are committed to building lasting relationships based on trust. This is the next generation of the real estate brokerage model, wherein a broker strives to be a long-term partner rather than someone who just assists with a one-time transaction. This shift away from the old model means that commercial real estate service providers are more and more beginning to function like other professional service verticals — operating as teams where highly educated professionals treat each relationship as an ongoing real estate consulting engagement.

4. You don’t want a lawsuit on your hands.

Lastly, would you want a broker who sues you? If your real estate representation doesn’t work out as intended, the last problem you should have to deal with is a lawsuit. But that’s exactly what could happen if your exclusive arrangement goes south. Conversely, brokers who are in the business of doing good work for their clients – as consultants – would never turn around and sue. You’re better off insulating yourself from the risk of litigation by refusing to sign an exclusive contract.

Companies hire commercial real estate brokers for a reason. An adept, forward thinking broker adds real value by making real estate transactions smoother, more cost-effective, and as minimally disruptive to the company as possible. However, there are still brokers out there who haven’t adopted a “service guarantee” value proposition, and will attempt to force you into an exclusive contract. Steer clear. The risks just aren’t worth it.

Tucker Hughes is managing director at Hughes Marino, an award-winning commercial real estate firm with offices in San Diego, Orange County, Los Angeles, San Francisco, Silicon Valley and Seattle. As head of Hughes Marino’s Orange County and Los Angeles offices, Tucker specializes in tenant representation and building purchases throughout Southern California. Tucker makes frequent media appearances to speak on the future of commercial real estate, and is also a regular columnist for Entrepreneur.com. Contact Tucker at 1-844-NO-CONFLICT or tucker@hughesmarino.com.



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